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Day Structure
As the day's trade progresses, a day structure develops that reflects the
acceptance or rejection of TPO's by participants, and organizes seemingly
chaotic market activity into a format that can be read and understood. Six
types of day structure have been identified: normal, normal-variation,
trend, non-trend, neutral, and running profile. Analysis of the day
structure allows one to judge the degree of balance generated by market
participants. Greater participation by the other-time-frame traders usually
causes imbalance.
Normal
Day
A normal day occurs when 80-100% of the day's price range consists of the
initial balance. The initial balance, delineated by the single vertical line
appearing to the left of the graphic, is the price range established during
the first two 1/2-hour periods of the trading session.
Another normal day. In this case, range extension
occurred: that is, the price range was extended beyond the initial balance.
A normal day is characterized by brief time/price relationships -- that is,
few TPO's -- at the top and bottom of the graphic, as well as with an
extended time/price relationship within the daily price range. The market is
two-time-frame, in which rotation is occurring: that is, price-probes at the
top of the graphic are met with selling, while price-probes at the bottom
are met with buying. This activity promotes market consolidation, and
results in the development of a value area wherein -- by definition -- 70%
of daily market activity occurs.
Normal-variation Day
On such a day, the initial balance comprises less than 80% of the day's
price range, and range extension -- either up or down -- can more than
double the initial balance. As the market probes toward the top of the
initial balance, it is advertising for selling. Such a price move would be
expected to produce sufficient selling to result in consolidation; instead,
on the day in question, buying resulted in E-period buying range extension
above the initial balance. Similarly, selling can result in selling range
extension below the initial balance.
Trend
Day
When a trend day occurs, the market is moving through time, and must be
monitored closely. Such a day is characterized by an unusually narrow
initial balance. Additionally, the market moves consistently in one
direction, but not sufficiently far at any one time to elicit a
consolidation-promoting reaction that would result in a value area; the
result is a long, narrow profile, generally moving in one direction. It is
not unusual for a trend day to close within a few ticks of its high or low.
Trend days are one-time-frame markets. The trend day depicted below is a
one-time-frame up market, in which all participants are buying, and in which
buying promotes additional buying. Each 30-minute bar generally has a higher
high and a higher low than the previous one: that is, the market is not
rotating.
Similarly, in the one-time-frame down market
below (06/21 in PETE format), all participants are selling.
Non-trend Day
Market participants are fading price probes, and the day's price range is
narrow; the market is not accommodating trade, and is going nowhere. As in
the case of a trend day, a non-trend day is characterized by an unusually
narrow initial balance; thus, a day with an unusually narrow initial balance
must be monitored with care, until it an be identified as either trend or
non-trend.
Neutral Day
A neutral day is characterized by range extension -- both up and down --
with little follow-through. Range extension occurred, and resulted in no net
influence.
Neutral days are relatively balanced and
symmetric, and it is not unusual for such a day to close near the center of
the day's price range.
Running Profile Day
A running profile day is characterized by a change in the condition of the
market during the trading session.
As seen below, in which a J-period split is
imposed on the graphic, the market developed as a normal day through the I
period; subsequently, the market condition changed to trend.
Initial and Secondary Auctions
Price activity that occurs while the daily auction converges to an initial
balance is attributed to the day-time-frame trader; this assumption is not
inconsistent with the fact that, during any particular trading session, the
other-time-frame trader may be participating during the first two 1/2-hour
periods. Once this balance is established during this initial auction, the
only possible development is imbalance caused by the other-time-frame
trader, as range extension develops during a secondary auction that may
proceed in periods subsequent to the initial auction. Depending upon the
vigor of the other-time-frame trader during the secondary auction, one of
the six types of day structure will result.
The other time frame trader's activity and his net
influence level is lowest on normal days when he is patiently entering on
the extremes and in the value area. His activity and his influence increase
when he is upsetting the initial balance and causing a range extension on
normal variation of normal days. He attains maximum influence when his
activity reaches the highest level on trend days (J. Peter Steidlmayer and
Shera Buyer, Taking the Data Forward, Market Logic Inc., Chicago, IL, 1986).
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